Asked by linda farran on Jun 19, 2024
Verified
When closing the Income Summary account when there is a net income:
A) Capital would increase.
B) Revenue would decrease.
C) Capital would remain the same.
D) None of these is correct.
Income Summary Account
A temporary ledger account used to summarize a period’s revenues and expenses before transferring the net result to the company's equity account(s).
Net Income
Net income is the total earnings of a company after subtracting all expenses, including taxes, interest, and operating expenses, from its total revenues.
Capital
Financial assets or the financial value of assets, such as cash and securities, owned by a business or individual, used for creating wealth or to engage in further production.
- Absorb the techniques of finishing accounts and their implications on the capital account.
Verified Answer
JE
Joshuah EwingJun 20, 2024
Final Answer :
A
Explanation :
When closing the Income Summary account with a net income, the amount is transferred to the owner's capital account, effectively increasing the capital. This is because net income represents the excess of revenues over expenses, which increases the owner's equity in the business.
Learning Objectives
- Absorb the techniques of finishing accounts and their implications on the capital account.